Fiscal policy
Cambridge IGCSE Economics (0455) · Unit 4: Government and the macroeconomy · 10 flashcards
Fiscal policy is topic 4.3 in the Cambridge IGCSE Economics (0455) syllabus , positioned in Unit 4 — Government and the macroeconomy , alongside Government role in economy, Macroeconomic aims and Monetary policy. In one line: Fiscal policy refers to the use of government spending and taxation to influence the economy. Its primary goal is to manage aggregate demand, stabilize the economy, and promote sustainable economic growth.
This topic is examined in Paper 1 (multiple-choice) and Paper 2 (structured questions, including data-response items).
The deck below contains 10 flashcards — 6 definitions, 1 key concept and 3 application cards — covering the precise wording mark schemes reward. Use the 6 definition cards to lock down command-word answers (define, state), then move on to the concept and application cards to handle explain, describe and compare questions.
Fiscal policy and explain its primary goal
Fiscal policy refers to the use of government spending and taxation to influence the economy. Its primary goal is to manage aggregate demand, stabilize the economy, and promote sustainable economic growth.
Questions this Fiscal policy deck will help you answer
- › What are the two main instruments of fiscal policy?
- › Discuss two potential effects of increased government spending on infrastructure projects.
- › Assess the possible impact of a decrease in income tax rates on consumer spending and government revenue.
- › Explain how fiscal policy can be used to address a recession.
Define fiscal policy and explain its primary goal.
Fiscal policy refers to the use of government spending and taxation to influence the economy. Its primary goal is to manage aggregate demand, stabilize the economy, and promote sustainable economic growth.
Explain the difference between a budget deficit and a budget surplus.
A budget deficit occurs when government spending exceeds tax revenue in a given period. Conversely, a budget surplus arises when tax revenue is greater than government spending.
What are the two main instruments of fiscal policy?
The two main instruments of fiscal policy are government spending (
Differentiate between direct and indirect taxes, providing an example of each.
Direct taxes are levied directly on income or wealth, such as income tax or corporation tax. Indirect taxes are levied on goods and services, such as VAT or sales tax.
Explain the concept of a progressive tax system.
A progressive tax system is one where the percentage of income paid in tax increases as income rises.
Explain the concept of a regressive tax system, providing an example.
A regressive tax system is one where the percentage of income paid in tax decreases as income rises. An example is a sales tax on essential goods, which disproportionately affects low-income earners.
Explain the concept of a proportional tax system.
A proportional tax system is one where everyone pays the same percentage of their income in tax, regardless of their income level.
Discuss two potential effects of increased government spending on infrastructure projects.
Increased government spending can stimulate aggregate demand, leading to economic growth. It can also improve productivity and efficiency in the long run by improving transportation and communication networks.
Assess the possible impact of a decrease in income tax rates on consumer spending and government revenue.
A decrease in income tax rates can increase disposable income, leading to higher consumer spending. However, it may also reduce government revenue, potentially leading to a budget deficit unless offset by other measures.
Explain how fiscal policy can be used to address a recession.
During a recession, expansionary fiscal policy, such as increasing government spending or cutting taxes, can be used to stimulate aggregate demand and boost economic activity. This aims to increase output and employment.
Key Questions: Fiscal policy
Define fiscal policy and explain its primary goal.
Fiscal policy refers to the use of government spending and taxation to influence the economy. Its primary goal is to manage aggregate demand, stabilize the economy, and promote sustainable economic growth.
Explain the difference between a budget deficit and a budget surplus.
A budget deficit occurs when government spending exceeds tax revenue in a given period. Conversely, a budget surplus arises when tax revenue is greater than government spending.
Differentiate between direct and indirect taxes, providing an example of each.
Direct taxes are levied directly on income or wealth, such as income tax or corporation tax. Indirect taxes are levied on goods and services, such as VAT or sales tax.
Explain the concept of a progressive tax system.
A progressive tax system is one where the percentage of income paid in tax increases as income rises.
Explain the concept of a regressive tax system, providing an example.
A regressive tax system is one where the percentage of income paid in tax decreases as income rises. An example is a sales tax on essential goods, which disproportionately affects low-income earners.
More topics in Unit 4 — Government and the macroeconomy
Fiscal policy sits alongside these Economics decks in the same syllabus unit. Each uses the same spaced-repetition system, so progress in one informs the next.
Cambridge syllabus keywords to use in your answers
These are the official Cambridge 0455 terms tagged to this section. Mark schemes credit responses that use the exact term — weave them into your answers verbatim rather than paraphrasing.
Key terms covered in this Fiscal policy deck
Every term below is defined in the flashcards above. Use the list as a quick recall test before your exam — if you can't define one of these in your own words, flip back to that card.
How to study this Fiscal policy deck
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